Apollo sells its corporate HQ, signs leaseback deal

A real-estate-investment trust has bought the buildings in University of Phoenix's corporate headquarters for $170 million and will lease back the property to the education company as part of a deal announced last week.

The university's parent company, Apollo Group Inc., signed a 20-year lease with Cole Real Estate Investments. The leaseback-purchase deal requires Apollo to keep the company's corporate headquarters in the building for at least the next 20 years.

Apollo expects to gain $28 million from the sale, according to company documents.

In 2004, Apollo, for $14 million, bought two buildings with 150,000 square feet of office space and 32 acres at the Riverpoint development near Interstate 10 and 32nd Street.

Later that year, Apollo sold those initial two buildings. The company built its present-day corporate complex on the 32 acres. That includes three mid-rise office buildings as well as two parking facilities completed in 2007. The headquarters includes about 600,000 square feet of office space.

"It's a 20-year lease with five-year renewal options," Rivera said. "So, the sale of the Riverpoint complex is pretty much a business transaction that allows Apollo to diversify our real-estate portfolio and really just to focus on our mission to provide quality education."

An analyst who follows Apollo said that such leaseback deals don't happen every day but that the deal wasn't unusual, either.

"In our view, it does not change the view of the company," said Peter Wahlstrom of Morningstar, an investment-research company. Apollo isn't hungry for cash: It carries little debt but generates $4 billion in revenue and has $650 million in net income and $1.5 billion in cash on its balance sheet, Wahlstrom said.

A more likely motive may be that Apollo wants to reap benefits of the land's appreciation, the analyst said.

Also, many companies find leaseback deals attractive because it may be cheaper to lease a building than shoulder the costs of ownership.

"You want to be able to draw a solid line to show that management are solid operators of the business but they are also good stewards of capital," Wahlstrom said. "And if there is an opportunity to lower operating cost or lower expenses, it's prudent to evaluate all options."

Cole officials said the transaction is likely the largest leaseback deal in Arizona history.

Under the terms of the lease, Apollo will pay $12 million annually.

The rate increases 2 percent per year, according to documents filed with the U.S. Securities and Exchange Commission. In the final year of the lease, Apollo is likely to pay $17.8 million.

Under the deal with Cole, Apollo is responsible for all property taxes, maintenance, insurance, utilities and other related costs.

Cole is one of the largest REITs in Arizona.

Real-estate-investment trusts allow investors to get a stake in properties such as office buildings but avoid any management responsibilities for them.

Thomas Roberts, executive vice president and head of real-estate investments for Phoenix-based Cole, said his firm was among a number of competitors that had answered a request for proposals from Apollo on a leaseback-purchase deal.